At least since the days of the ancient Greeks, politicians have recognized the potential use of economic penalties as a weapon of statecraft somewhere between diplomacy and war. It is only in the twentieth century, however, with the increasing interdependence of the world economy and the ever more costly nature of war, that economic sanctions have really come into their own as a serious alternative to the use of military force. ( Hufbauer et al p. 54-65). At the level of international organizations, sanctions have usually been imposed as retaliation against external aggression or other violations of international law. When imposed by individual governments, however -- or by nongovernmental actors -their objectives have often focused on inducing changes in the domestic policies of the target country, usually to protect the interests of the country imposing sanctions.
The South African case is unique, firstly, in
the combination of measures applied to it by international
organizations, individual governments and nongovernmental
organizations; and, secondly, in the fact that
these measures were not applied for the usual
reasons of the preservation of international peace
and security or the promotion of state interests,
but in the name of an international standard of
morality, often against the protests of business
interests and conservative governments.
History Of Sanctions Against South Africa The Early Years South Africa has spent many decades as a pariah state. As early as 1946, the Indian government imposed a trade embargo and cut off all relations to protest racial discrimination against the Indian community in South Africa (which had been led in civil disobedience campaigns by Mahatma Gandhi before the war). From the late 1950s onward, as decolonization spread across Africa , the newly independent states adopted unilateral measures against the South African regime in an expression of solidarity with the ANC and its own struggle for independence from minority rule.
The Sharpeville massacre of 1960, the state of emergency and the repression that followed it and the call of the ANC for economic sanctions against South Africa all converged to bring the first serious response from the international community. In 1962, the United Nations General Assembly passed the first of a long line of resolutions calling on its members to sever trade and transport links with South Africa , and in 1963 it reinforced this appeal with a call for an oil embargo. In August 1963, the Security Council called on all states to cease shipment of arms to South Africa , and in December the first mandatory U.N. sanctions were imposed, though they took the weak form of proscribing shipment of equipment and materials for arms manufacture. By the end of 1963, 46 states had informed the Secretary General that they had cut off all links with South Africa , and 21 more had indicated that they intended to do so. ( Moorsom p. 54)
As the membership of the United Nations was
transformed by the admission of the newly independent
states of the Third World , strictures against
South Africa became stronger, and in 1970, South
Africa was excluded from business on the floor
of the General Assembly. In 1973, the Assembly
recognized the ANC and the Pan-African Congress
(PAC) as the "authentic representatives of
the overwhelming majority of the South African
people." ( Stultz p. 18-9)
The successful suppression of dissent in South Africa during the 1960s and early 1970s restored a superficial calm to the country, and South Africa was supplanted on the international agenda as political concentration was turned to the rebellious regime in Rhodesia . Nevertheless, the increasing numbers of local anti-apartheid organizations in Western Europe and the United States continued to bring pressure to bear on the problem. As the 1970s progressed, campaigns for consumer boycotts of South African products and investor boycotts of companies doing business with South Africa grew in strength. Though these efforts were not matched by government action in the West, in 1973: the Organization of Petroleum Exporting Countries (OPEC), acting on a request by the Organization of African Unity (OAU), imposed an oil embargo on the country (which was flouted by the Shah of Iran, who became South Africa 's chief supplier until the Iranian revolution of 1979).
In 1976, events in South Africa brought the
question of sanctions to center stage again. The
Soweto uprising and its suppression, and in particular
the death in detention of Stephen Biko, the charismatic
leader of the Black Consciousness movement, led
to the final adoption of a U.N. Security Council
resolution stating that the situation in South
Africa constituted a threat to international peace
and security and imposing a mandatory arms embargo
on South Africa under Chapter VII of the Charter.
( S.C. Res. 418 (1977)) At the same time, the
so-called Western Contact Group in the Security
Council (the United States , Britain , France,
West Germany and Canada ) sponsored a resolution
setting out a framework for Namibia 's transition
to independence from South African rule. ( Ungar
& Vale p. 234-58). Meanwhile, codes of conduct
for the treatment of employees of corporations
operating in South Africa were adopted both by
the European Community (E.C.) and, in a private
initiative, by some U.S. companies (the "Sullivan
Principles"). South Africa began to suffer
seriously from its image in the international
financial markets and found it more difficult
to raise new loans.
Despite this increasing perception of South Africa as an outcast, no really substantive measures beyond the U.N. arms embargo were adopted by the international community until 1985. These new punitive measures were prompted by the intensification of the anti-apartheid struggle in South Africa itself. In 1983, the South African government attempted to buy respectability with the introduction of a new constitution that extended the franchise to Indians and Coloreds, but on the basis of separate electoral rolls and a tricameral parliament. This sham reform failed to win any political support and provoked renewed internal protest. Increasing disorder and protest spread in the African townships, once again matched by government repression and the declaration of a state of emergency. Pictures of brutal action by the South African police and army flooded the international media, causing an outcry that finally forced Western governments to bow to popular pressure. By the end of 1985, the United Nations had strengthened its policy, individual Western governments had all adopted some level of additional sanctions against South Africa and private institutions were forced to respond.
Nongovernmental Action: Disinvestments And
Debt South Africa is an unusual case
in the history of the use of sanctions, in the
extent to which the economic penalties imposed
on the country have been "peoples' sanctions,"
rather than the result of government calculations
of national interest. Even the measures adopted
by governments were largely the result of lobbying
by anti-apartheid groups, and some of the most
visible attempts to isolate South Africa , including
sporting and cultural boycotts, took place entirely
outside the framework of formal government action.
In the economic sphere, two nongovernmental initiatives
were of particular importance: the campaign for
disinvestment (the ending of equity ties with
South African companies or subsidiaries by non-
South African companies) and the decision made
in August 1985 by some of South Africa 's largest
creditor banks to refuse to roll over its short-term
debt.
The anti-apartheid lobby ran a major campaign to induce disinvestment from South Africa , which began in the 1960s, gained momentum in the 1970s and early 1980s and reached its climax in 1985. This campaign was particularly successful in the United States , where 83 cities, 19 counties and 25 states took some action to withdraw their business --often worth more than these companies' total business with South Africa itself -- from banks and companies with links to South Africa . ( Knight p. 69) In Britain the campaign aimed at student accounts was admitted by Barclays Bank to have played a large part in its important decision to sell its South African subsidiary in March 1986, though local government action was subsequently made illegal by legislation sponsored by the Conservative government in 1988 preventing local authorities from using political considerations in awarding contracts. Similar campaigns took place in all countries with trading and investment connections to South Africa . At least partly as a result of these campaigns, between 1 January 1984 and 14 April 1989 , 155 United States companies and 122 companies based in other countries disinvested from South Africa . ( U.N. TNC Hearings, p. 70-7)
Moreover, the increasingly uncertain political
and economic climate in South Africa made the
country less attractive as an investment possibility
for foreign capital. The rising levels of political
unrest, the poor performance of the South African
economy and the declining price of gold, from
a high of $850 per ounce in 1980 to around $400
per ounce in late 1984, ( Lipton, p. 59) all reduced
confidence in South Africa as a safe destination
for investment dollars and magnified the impact
of the disinvestments campaign. The share of direct
investment (wholly or majority-owned subsidiaries
of non- South African companies) as a proportion
of total foreign investment in South Africa decreased
from almost 60 percent in 1970 to 34 percent in
1985. ( Ibid. p. 36) Equity was replaced by more
fungible loans, and loans increasingly became
short term and less dependable for South Africa
.
In July 1985,10 days after President P.W. Botha declared a state of emergency, Chase Manhattan Bank announced that it was freezing unused credits to South African businesses and would not renew short-term loans. Other banks scrambled to follow, each anxious not to be the last one out, and a severe liquidity crisis ensued, leading to the South African government's decision to close the stock exchange and foreign-exchange markets until 2 September and cease payment of interest on its $14 billion short-term debt. In March 1986, a standstill arrangement for the resumption of interest payments and the rescheduling of credits over a three-year period restored the appearance of normalcy, but not before massive amounts of capital had left the country. Total withdrawal during the first half of 1985 had already amounted to $1.7 billion; during August alone, United States banks withdrew approximately $300 million. ( U.N. TNC Hearings, pp. 89-91; Lewis p. 111)
The Aims Of Sanctions Any
judgment on the usefulness of sanctions as a policy
instrument requires defining the results that
sanctions were designed to achieve: Much of the
confusion in the debate over sanctions on South
Africa is rooted in a failure to set out clearly
the aims of sanctions as a policy. Governments
may have multiple objectives in implementing sanctions;
different governments targeting the same country
may have different goals; nongovernmental pressure
groups urging the adoption of sanctions are likely
to be more radical in their aims than the governments
influenced by their activities; and business interests
charged with compliance to sanctions policies
may be anxious simply to minimize their effects.
( Baldwin p. 59-71) This complexity has been particularly
apparent in the case of South Africa , where each
body adopting or advocating sanctions stated a
different objective. Nevertheless, the overall
aim of the various measures was clear: the repeal
of the major apartheid legislation and the initiation
of a real attempt to negotiate the end of minority
rule.
In the United Nations, resolutions have called for ending the system of apartheid and creating a non-racial democracy, with sanctions to be maintained, "Until there is clear evidence of profound and irreversible changes." The Commonwealth issued a series of statements setting out the steps to be taken by the South African government "with a view to establishing a non-racial and representative government in a united and non-fragmented South Africa" -- including the dismantling of the system of apartheid, the end of the state of emergency, the release of Nelson Mandela and other political prisoners, the lifting of the bans on the ANC and other political parties and the initiation of negotiations across the color barrier. If Pretoria implemented these steps, then the Commonwealth was "ready to review the situation and to rescind the measures we have adopted if appropriate." ( Commonwealth Heads of Government… p. 5) The European Community stated that its policies toward South Africa were aimed at the "total dismantlement of apartheid," ( Holland p. 43) making the familiar calls for the release of political prisoners and the unbanning of the ANC, though the content of such a "dismantlement" was left ambiguous. In February 1991, the E.C. told Pretoria that sanctions would be lifted once legislation had been introduced to repeal the major apartheid laws. Mirroring these statements, the U.S. CAAA set out its purpose as "helping to bring an end to apartheid in South Africa and lead to the establishment of a nonracial, democratic form of government" and specified the usual conditions for sanctions to be lifted.
In the nongovernmental arena, the claims of
the various branches of the anti-apartheid movement
as to the aims and likely results of sanctions
were diverse and often overly optimistic. It was
clear, however, that business, the most significant
player, would require at least the lifting of
the barriers to free-market capitalism and some
indication of an intent to negotiate a sustainable
political order before confidence and investment
would be restored. ( Clough p. 12)
The Economic Impact Of Sanctions According to generally quoted estimates, the South African economy needs to grow at a rate of about five percent a year if it is to keep pace with the growth in population and provide jobs for all those entering the work force. Since the 1960s, this level has not been reached, and growth has steadily slowed, averaging three percent during the 1970s and around one percent for the 1980s. ( South Africa's GDP growth rates, p. 18) Unemployment has grown correspondingly rapidly, to around 40 percent, although figures are impossible to verify since the unemployed are mostly concentrated in the unmeasured black "'homelands"; moreover, inflation has stayed at obstinately high levels for the last decade, despite high interest rates. ( South Africa p. 13)
Although distorted by the endless regulations
and restrictions of apartheid, the South African
economy has a profile similar to that of other
middle-income semi-industrialized countries dependent
on the export of primary products. The economy
is very open, with trade amounting to around 60
percent of GDP: Minerals are the backbone of the
export figures, and gold alone accounts for 40
percent of export earnings, though it represents
a declining share of government revenue. Imports,
by contrast, are mainly high value-added products,
and technological imports, however incorporated
into the statistics, are crucial. The skills base
of the South African economy is simply not large
enough to sustain the sort of research and development
necessary to keep it at the forefront of modern
technology. Even before sanctions were imposed,
most possible import substitution had already
been carried out in anticipation of economic isolation
by the use of rules for local content of manufactured
products and by devaluation of the rand. Unlike
Rhodesia , little in the way of an import substitution
boom could be expected from the "protective
tariff" effect of sanctions.
The openness of South Africa 's economy, its limited number of major trading partners ( Askin p. 173-89) and its geographic isolation from them makes it theoretically the perfect target for trade sanctions. At the same time, those who opposed the attempt to isolate the country -- including the South African government -- were at pains to point out the difficulty of effective enforcement of any blockade. In fact, trade sanctions were never even theoretically comprehensive, while South Africa developed sophisticated methods of sanctions busting. Accurately assessing the actual effect of trade sanctions was also deliberately hindered by the South African government's suspension in 1986 of the publication of detailed trade figures. Moreover, fluctuations in the gold price or exchange rate could mask other influences on the economy.
These provisos should not prevent a realization
of the true costs of trade sanctions to the economy,
most visible in the embargoes on the supply of
arms and oil. Although sanctions helped South
Africa to build up an arms industry of its own,
the country has been unable to develop the high-technology
weapons of modern warfare and has been forced
to buy on the black market. ( Hufbauer et al.,
p. 353) . According to the Washington Post, "informed
estimates are that the markup for arms purchased
on the international black market range between
20 percent and 100 percent."( Commonwealth
Report, p. 36) Similarly, in 1989 the Shipping
Research Bureau estimated that it cost the South
African government about $2 billion per year to
break the oil embargo, achieved through a combination
of purchases on the spot market and the development
of the SASOL oil-from-coal plants. ( Ibid) President
P.W. Botha actually admitted to Parliament on
21 April 1986 that "between 1973 and 1984
the Republic of South Africa had to pay R22 billion
($25 billion) more [for oil] than it would normally
have spent. There were times when it was reported
to me that we had enough oil for only a week.
Just think what we could have done if we had that
R22 billion today." ( Lipton, p. 91)
Although bans on imports from South Africa, designed to reduce the amount of foreign exchange available to the country for its overseas purchases, were less than maximally effective--in particular because of the gaping absence of gold (apart from Krugerrands) from the sanctions provisions, and the refusal of the E.C. to implement a coal embargo --it is estimated that South Africa lost approximately seven percent of its traditional exports between 1985 and 1989 (R2.3 billion). Overall, trade sanctions imposed substantial, if indeterminate, costs. ( Love p. 91-111)
In contrast to its trade position, South Africa is unusual among similar economies in having developed domestic sources of saving. Although foreign investment was crucial to the formation of South Africa's industrial base, and the net value of foreign direct investment has continued to grow, the larger part of this figure is made up by the reinvestment of locally earned profits, so that the net flow of capital into the country, has been of declining importance (and has turned negative in recent years). As a result, it has been argued that " South Africa would be better off in financial terms if it could completely stop doing business with foreign private investors"; that is, if all foreigners gave up their holdings in South African companies and South Africa prevented the proceeds of sales from being expatriated at full value. ( Hufbauer et al., p. 244)
Hence, the economic effects of disinvestments
are inconclusive. Indeed, it seems clear that
the short-term effects of the disinvestments that
took place were beneficial to the South African
economy. Companies wishing to disinvest were forced
to do so in a buyers' market; South Africans could
therefore acquire former subsidiaries, whose profits
would no longer be taken out of South Africa in
the form of dividends, at cut-rate prices. The
South African government also took swift action,
after the banking crisis of 1985, to prevent the
profitable repatriation of the proceeds of sale
of capital assets in South Africa . ( U.N. TNC
Hearings, pp. 69-81) Further, this contrary effect
of disinvestment, enriching (at least in the short
term) South African white businesses at the cost
of foreign companies, was not mitigated by any
spreading of ownership to black entrepreneurs.
Only a few companies attempted to incorporate
some element of black ownership into their arrangements
for withdrawal. ( Lansing & Kuruvilla p. 561-74;
Hirschmann p. 91-109) Lastly, insofar as disinvestments
caused job losses and theoretically replaced more
progressive employers with South Africans not
obliged to follow codes of conduct, it also had
negative affects on black employees, though the
real impact was probably not great, and the attitudes
of the black workers themselves are difficult
to assess. Black leaders, including most unions
and the ANC, continued to advocate disinvestment
and sanctions. ( Lipton, p. 39)
Although these arguments were seized on by opponents of economic measures against South Africa , the short-term benefits of disinvestment to white South Africans were in the end irrelevant. It was always clear that the long-term effects on the economy would be serious, in particular the threat to importers of technology by the breaking of equity links with parent companies, even where licensing arrangements were retained. On the assumption that total autarky would not be achieved, it was calculated that around 10 percent of total investment should still be supplied by foreign sources to maintain a satisfactory growth level. ( Price p. 275) Moreover, unless foreign capital continued to flow into the country, internally generated growth at the level needed to keep the unemployment figures merely stationary would stimulate an import boom, undermine the trade surplus and thereby threaten repayment of debt. ( Schmidt p. 26) According to Jan Steyn, director of the South African Urban Foundation, South Africa in 1986 was "desperately short of development capital. . . [we are] still a developing country. . .with a very great need for investment," and, as the domestic recession dried up internal sources of saving, "the need for investment from abroad [became] yet more acute." ( Schmidt, p. 25)
This need was painfully underlined by the debt
crisis of 1985. The crisis caused the value of
the rand to collapse to half its 1984 level, while
more than Rll billion fell off the value of shares
traded in the Johannesburg Stock Exchange in one
week in late July: The wave of selling by American,
British and French shareholders was described
as a "bloodbath" in the local business
press. ( EIU Country Profile p. 46) It provoked
a massive outflow of capital from 1985 to 1988,
( EIU Country Report, no. 3. p. 18; Ovenden and
Cole p. 46-54) threatening future growth potential,
and it forced the South African government to
concentrate on generating fine trade surplus needed
to service the agreed interest payments, simultaneously
jeopardizing immediate growth and contributing
to the growing mass of unemployed. Although Reserve
Bank governor Chris Stals could declare "the
debt crisis is over" when loans were partially
rescheduled in 1990, it was now clear that financial
sanctions, especially the termination of short-term
trade credits, could cripple the economy. Most
importantly, the crisis was interpreted by all
observers -- government, business and opposition
anti-apartheid groups -- as a political rather
than an economic judgment on the situation in
South Africa: " South Africa's difficulties
are not comparable with those of other developing
countries; its problems are political. . . South
Africa is not facing a currency crisis but a political
crisis." ( Commonwealth Report, p. 11)
The statistics tell their own story: "Had the South African economy been able to sustain its growth rates of the 1946-75 period through the late 1980s, real GDP would have been more than 45 per cent higher, and real GDP per capita would have increased rather than diminished." ( Sanlam Economic Survey p. 12) South African business was only too well aware of these effects: In 1988, the South African Trust Bank estimated that sanctions and disinvestment would cost South Africa R40 billion ($20 billion) from 1985 to 1990, that the average South African would be 10 percent poorer than would have been the case without sanctions, and that per-capita income in 1990 would be below the level for 1970. ( Price, pp. 40-3) In September 1986, South Africa 's largest insurance house considered the potential effects of sanctions on the economy, stating that:
After the initial disruptive effect, sanctions could even create benefits for the economy in the short term. In the longer term they will definitely have a restrictive effect on the South African economy's potential for growth -- on account of our considerable involvement in foreign trade . . . . The damaging implications of sanctions against South Africa should not be underestimated. ( Hufbauer et al., p. 224)
At the same time, sanctions emphasized the internal
costs of apartheid to the economy. As the gold
price fell, the oil price rose, the world economy
went into recession and sanctions began to bite,
it became increasingly apparent that South Africa
would face considerable structural obstacles to
growth. The South African economy is dominated
by a public sector that accounts for about 28
percent of GDP: It finances armed services that
account for 20 percent of the annual budget and
5 percent of GNP, artificially subsidizes the
use of capital against labor while the population
and unemployment level soars and simultaneously
prevents the greater part of the population from
significantly contributing to the national wealth.
The costs of enforcing this system on an unwilling
population, while maintaining 14 bureaucracies
to do the work of one, so that each "race"
could be dealt with separately, were becoming
all too obvious.
Accordingly, South African business leaders repeatedly
called for political reforms that would remove these
trammels on business, lead to the lifting of sanctions
and allow growth to resume. In August 1985, South
Africa's four main business groups called on the
government to open negotiations with black leaders,
asserting that any measures adopted to deal with
the economic crisis must also include political
reforms; (Hufbauer et al., p. 230) in January 1985,
a coalition of six employer groups, claiming to
represent 80 percent of South African workers, issued
a statement calling for significant changes in the
apartheid system; (Lipton, p. 90) in May 1989, Central
Bank Governor de Kock warned that economic stagnation
threatened South Africa
The Declaration on Apartheid and its Destructive Consequences in Southern Africa, adopted by the General Assembly by consensus in 1989; Annex to GA Res. S-16/1 of 14 December 1989. South Africa is not a signatory to any of the major human rights documents of the United Nations, and, moreover, abstained when the Universal Declaration of Human Rights was adopted by the General Assembly in 1948. The anti-apartheid resolutions adopted in the United Nations have therefore not been able to refer to human rights obligations assumed by South. Africa under the U.N. regime, apart from the notoriously vague provisions of the U.N. Charter. Although arguments have been made that a new international-law principle of non-discrimination on racial grounds has been established since the Second World War, South Africa has strenuously resisted any attempt to base opposition to apartheid on its international-law obligations, and the existence of such a principle remains controversial.
CAAA, Section 311.
Implicit agendas usually operated simultaneously
with the explicit policies of the different sanctions
legislation. Members of the various booties voting
on the implementation of sanctions could have
in mind simultaneously the need to placate domestic
pressure groups or to avoid marginalization in
African politics, as well as (or instead of) the
aim of improving conditions for black South Africans.
For example, Senator Nancy Kassebaum, a key Republican
supporter of the CAAA, frankly admitted in 1986
that her support for sanctions was hardly even
connected to an assessment of the internal situation
in South Africa: "We aren't fooled that sanctions
work very well or will cause the South African
government to buckle under . . . but if we want
to be perceived by South Africa and all sub-Saharan
Africa as a player in the future we have to show
whose side we are on."
The effect of the embargo was visible in 1987, when South Africa invaded southern Angola in support of UNITA and attempted to capture the strategic town of Culto Cuanavale : Unable to replace airplanes vulnerable to anti-aircraft fire and with its aging Centurion tanks outgunned, South Africa was forced to withdraw ignominiously.
Washington Post, 24 February 1985 .
U.N. TNC Hearings, p. 12 and Commonwealth .Report, p. 30 The EI.U estimated in November 1987 that sanctions were likely to reduce non-gold exports by 9 percent.
Barclays National Bank, for instance, the South African subsidiary of the London-based Barclays Bank, was purchased at a share price of $8.10 per share, when it had been trading at $14.58 per share only weeks before, according to U.N. TNC Hearings, p. 71. Financial Times, 6 June 1987 , calculated that the Barclays disinvestment might even have had a favorable effect on South Africa 's balance of payments.
Although dividends on shares could leave the country at the standard "commercial rand" rate determined by the market, a dual exchange-rate system was introduced, by which profits representing capital disinvestments had to be turned into foreign exchange at the (lower) "financial rand" exchange rate, ensuring that all expatriated sale proceeds had to be replaced rand for rand by new investment.
Coca Cola, Pepsico and Ford were the only U.S. companies to achieve some measure of success in doing so: Coca Cola and Pepsico were involved in the only two successful bids by black investors to purchase assets of disinvesting foreign corporations, and Ford negotiated a deal with its unions whereby 24 percent of the shares in its plant were placed in a trust whose trustees were elected by the workers and whose profits were to be spent on community projects.
Almost $4 billion in 1985 alone.
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